What's the matter with Microsoft?

The software giant has retreated from flubs in licensing, the design of its flagship Windows operating system and most recently, innovations it wanted to bake into its new game console, the Xbox One.

On Wednesday, in fact, the highlight of the BUILD developers conference opening keynote will certainly be Windows 8.1, an upgrade that Microsoft casts as a customer feedback-driven refresh, but that some outsiders see as a reversal, even a repudiation, of its first-pass design.

What's going on? Is the company's decision-making suddenly fundamentally flawed? As the PC industry goes through its largest-ever slump, is it so desperate that it's trying to milk revenue wherever it can by forcing change -- even when it knows customers will rebel? Has it taken to hauling up the white flag at the first sign of resistance rather than toughing it out, as the old Microsoft might have?

Companies make mistakes all the time, sometimes crippling ones that drag them under. But if the organization is large enough, robust enough, it survives, learns. Ford weathered the Edsel, Coca-Cola New Coke, Netflix its Quikster, Apple the 1985 ousting of Steve Jobs, 2010's Antennagate and last year's Maps fiasco. But the pace of Microsoft's missteps and the resulting turnarounds -- three in the span of four months -- is unusual.

In March, Microsoft retreated from a sweeping change in its licensing for retail copies of Office 2013, giving way after customers complained that they'd be labeled lawbreakers for trying to move the software from one machine to another. In late May, Microsoft revealed some of the changes slated in Windows 8.1, including the restoration of something very close to the iconic Start button. And last week, Microsoft quickly backed off Xbox One plans that would have nixed sales of used games and required the console to "phone home" daily to Redmond's servers.

Too focused on money?

Industry analysts and other experts had all kinds of answers for the questions raised by Microsoft's miscalculations. Some saw a company blinded by a desire to squeeze the last dollar out of customers, or one that thought aping Apple would be a winning strategy. Others faulted it for not anticipating what, in hindsight at least, was guaranteed blowback.

"People don't like revocations of the physical rights they assign to property, even when we're talking about software licenses, not software ownership," said Wes Miller, an analyst with Directions on Microsoft, of the Office 2013 and Xbox One used-game errors. "We have an essence of tangibility, a feeling of ownership, when we buy a floppy disk or buy a CD, or even download a file."

But by restricting that ownership, and doing that suddenly, Microsoft stepped into a morass when it told customers they couldn't move Office to a different PC or said that Xbox games could not be resold. It violated that feeling of ownership, which customers interpreted as stealing something rightfully theirs.

"People don't adjust well to change when that change means less rights and freedom than before," Miller said, using words that could have been spoken by Boston radicals like Samuel Adams in 1774.

Others echoed Miller on the difficulty of changing behavior and Microsoft's apparent belief that customers would willingly accept change, as evidenced in statements by Microsoft executives that Windows 8 users would quickly grow comfortable with its far-reaching alterations.

Users don't like change

"It's very hard to make monumental business changes in this day and age," said Peter LaMotte, an analyst with Levick, a Washington, D.C.-based strategic communications consultancy. "People are used to certain functionality, certain interfaces, and it's very difficult to take those things away from them."

In other words, Microsoft either didn't view those rights, implied or not, in the same way as did customers -- a failure of one kind -- or ignored evidence to the contrary, an error of quite another dimension.

Philip Morton, a senior practitioner in gaming at Foolproof, a U.K. user interface (UI) and user experience (UX) design consultancy, wasn't sure which it was -- though he leaned toward the latter -- but he was certain Microsoft screwed up on the Xbox One.

People will accept change, Morton said, if it's clear there are benefits to doing so that outweigh the burden of the change itself. While that may read as obvious, Microsoft either forgot it or knowing it, plunged ahead anyway.

"Microsoft had a carrot and a stick, but it was all stick and no carrot," Morton said of the Xbox One plans, which were pitched as a way to simplify sharing games within a family or group of friends, and to make a customer's game library available from any Xbox console. "Xbox has been successful despite Microsoft, not because of it," he said. "[With the Xbox One] there was too much Microsoft in the Xbox. Too much of the traditional Microsoft had a say in that decision. They thought more of their business requirements and what the business wants than what the customers want. They didn't communicate any benefit to the changes, and treated customers like criminals."

Forcing changes onto customers -- not, for instance, giving them an option, as Microsoft has by maintaining traditional "perpetual" licenses even as it pushes Office 365 subscriptions -- was the final straw, said Morton.

Blindsided by backlashes

Nor did Microsoft seem to anticipate the backlashes to any of the three changes -- another failure, said experts.

"Consumers are more vocal now," said Miller, citing social media's amplification of complaints. "In each case, Microsoft made a bold statement, but then had to rescind it after a Twitter outcry."

LaMotte of Levick concurred. "If you release something with new functionality, consumers are prone to give feedback fast and furious. That's the benefit and the downside of social media."

That was especially true in the Xbox One affair because of the unique nature of the gaming community. Gamers are passionate about what they want, identify personally with the software, much more so than, say, users of Windows or Office. And they're already organized, so to speak, because of the way many network to play online.

They're also a different demographic group, LaMotte argued, one that likes to complain.

"Gamers love to share their opinion and share their disgust," LaMotte said. "But Millennials are especially vocal about what they don't like. It's almost as if the movement picked up steam just to make Microsoft reverse the decision, no matter what an individual thought. People who grew up in the 60s or 70s, 80s and 90s, they had things to rebel against. Millennials don't. So they find things to rebel against."

Patrick Moorhead, principal analyst with Moor Insights & Strategy, saw Microsoft's moves differently. "Sometimes companies believe that they're smarter than everyone else," he said. "Apple made that strategy feasible by being successful without soliciting consumer reaction. I think Microsoft saw that and said, 'That's how we can be successful, too.'"

Microsoft isn't Apple

Moorhead found hints of Microsoft's mimicry in its relatively-recent penchant for secrecy, a change itself from decades of being far more transparent. "Microsoft could have done a better job [in these cases] by asking people beforehand," Moorhead asserted. "But they've become more isolated, more ... insular ... as it relates to people who they used to get feedback from, like analysts and the press."

What works for one company, Apple for example, doesn't necessarily work for another, like Microsoft. "Their initial reaction [to critics] of Windows 8 was that 'We know better,'" said Moorhead. "There was no admission that they'd made a mistake or flexibility whatsoever."

That didn't go down well.

On the Xbox One, at least, Morton thought that Microsoft's miscue may have stemmed from incorrect assumptions of the market. In its initial presentation of the Xbox One, Microsoft focused on the device's non-gaming traits, particularly its television viewing features. "They build up a house of cards with an incorrect assumption of who would be the purchaser," Morton said.

Sony, which portrayed its new console, the PlayStation 4, as the anti-Xbox One, pitched its hardware to gamers, as a game machine, with the hope that others in the family would use it, too. Microsoft's mistake was taking the opposite tack.

Lessons learned?

Even with the missteps, several of the experts said, there's evidence that Microsoft has learned lessons. Some encouraged Microsoft not to give up on its long-term strategy, even in the face of the three failures.

"They were shooting for the future," said Miller, of the original Xbox One and Windows 8 decisions. "And I agree with them. They had to do the changes." It's inevitable, he said, that games will go all digital, all served via downloads, and that Microsoft's Windows 8 shift to emphasize mobile was necessary to stay relevant.

Moorhead believed Microsoft has improved its responses to faux pas, even in the last few months. "I do get a sense recently that Microsoft's taken a softer tone, and admitted that they didn't get it right," said Moorhead, referring to the Xbox One and Windows 8 retreats. "The addition of the Start button [to Windows 8.1] was at least some admission that they're not perfect."

But Miller wondered what the reaction to Microsoft's moves meant in the long term, and not just for the Redmond, Wash. developer. "The world may not be as ready for cloud services as some might want them to be," Miller said, pointing to Xbox One. "If [Xbox One and Office] are indicative of Microsoft's longer-term goals, are they achievable? And will consumers follow?"

None of the experts dared predict the exact nature of the future, but pointing to the pain of change, some cautioned other companies to learn from Microsoft's experiences. "It's the times in which we live," said LaMotte. "If you're going to allow the world to beta test your products, you'd better be ready for the feedback."

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